January 28, 2009

As most of you know I believe that the downstream risks buried in supply chains represent the next big frontier in risk mitigation. Not vetting a vendor sufficiently or creating a methodology to measure, monitor and collaborate with the organizations that comprise your supply chain sets your company up for problems.

Here are a couple of great examples.

Corpedia Sues LRN. With full disclosure, LRN is a valued partner of EthicsPoint and I have the utmost respect for my friend, Dov Seidman, their Founder and CEO.

On December 28, Corpedia, a competitor of LRN, filed a lawsuit against LRN for trademark infringement and unfair competition for LRN’s use of Corpedia as a Google® key word search term. Over the course of the past few years I have had several of EthicsPoint’s competitors use our trademarked name for this purpose, and usually a simple phone call or a cease and desist letter resolved the situation. This is an unfortunate event for those of us in the ethics business, regardless of who’s right or wrong; we shouldn’t have to resort to lawsuits.

Although I am unaware of any dialog between Corpedia and LRN regarding this matter, I am familiar with the fact that very often third-party web optimization firms are engaged to direct this type of marketing effort. The decisions that are made about what words to buy, how to sponsor the links, how to structure the ads, etc. is left to the outsourced firm and the only measurement by the client is the number of leads generated from the activities.

A good friend of mine, Patrick Kuhse, weaves a great a story about why people and organizations get into trouble. Patrick speaks from experience: he is a convicted white-collar felon having spent four years in a Federal Prison. Before serving his time, he was an international fugitive from justice which landed him, with some help from Interpol, in a Costa Rican prison for a while too. Today, Patrick is an international speaker on the topic of business ethics and critical thinking skills. He also dedicates a lot of his time talking to college students about not making some of the same mistakes he did. Patrick has summed these up into his “8 Critical Thinking Errors that can Wreck a Career.” One of these is titled Seeming Unimportant Decisions.

Again, without being knowledgeable about the specifics of the Corpedia/LRN case, I can foresee this being another example of why organizations need to better manage and audit vendors and supply chain; as the organization is almost always responsible for the actions of their vendors and supply chain. Could a seemingly unimportant decision not to review the key search words being selected have led to a multi-million dollar lawsuit – not to mention the business distraction this litigation undoubtedly generates?

The Peanut Butter Nightmare. Earlier this month, Peanut Corporation of America (PCA), a peanut processing company and maker of peanut butter for bulk distribution to institutions, food service industries, and private label food companies, announced a voluntary recall because their peanut butter was potentially contaminated with Salmonella. PCA's products aren't sold to grocery stores. PCA only sells peanut butter to institutions and food manufacturers. So this potentially dangerous peanut butter is now in candy, cookies, ice cream, etc. PCA is a part of the supply chain for General Mills, Clif Bar, Kroger, Kellogg and 81 other companies – including a number of nursing home food service facilities.

Consequently there have been a number of deaths attributed to this matter and hundreds of people reported ill. The FDA has identified four different strains of salmonella in the plant and said “the Peanut Corp. of America plant had shipped products that the company's own initial tests found to be positive for salmonella. They retested and got a negative reading.”

Without question this is an unfortunate situation and it is unlikely that this will end well for any of the parties involved. The shelf life of peanut butter and the mixing and intermingling of the product in processed foods truly makes this a nightmare.

My question for you – How do you know that your supply chain is acting ethically?”

January 19, 2009

Ronald Regan and Abraham Lincoln are my two favorite presidents. Both faced very difficult times in our country’s history, and both responded with personal strength and conviction to shape and dramatically change in our world. Both were masters of compromise and communication. What is remarkable about these great leaders is that neither of them is recognized for bringing a “big IQ” to the Office.

One of the quotes I like and feature on this blog is from Ronald Reagan. Regan said, “There are no easy answers, but there are simple answers. We must have the courage to do what we know is morally right.”

Tomorrow is a big day for our nation and a turning point in our history. Not because of the color of Mr. Obama’s skin, but because of the way our nation is responding to its new leader, the promise of a new direction and a new hope for our future.

As I think about the problems our country faces today and the important role our new president will play, I am prayerful that Mr. Obama will have the moral courage to do what is right for the country. Some of the early decisions he has made give me great hope, others frankly give me pause. He has selected a number of individuals for his cabinet who are not only bright, but are free thinkers. Can he control the conversation and will he have the conviction to lead despite what is politically expedient? How important do you think Mr. Obama’s first 100 days in office will be?

January 13, 2009

Late in 2008, I bought a new car and, because I’m such a wonderful father, I traded my old car with my youngest daughter. This meant she got to replace her 2001 Hyundai (worth only a few thousand dollars) with my old 2004 Mercedes, which she agreed was an excellent deal. Not wanting to list and sell her old car myself, I found a broker through my network of friends. He agreed to sell the car for a modest fee. We listed the car and within a couple of months the car was sold. To date, I have yet to receive any money and we soon came to realize that we, along with several other people in Portland, had been taken by a broker who had skipped town.

Right now, I own – e.g. have the title in my possession - the Hyundai. A very nice person, to whom I have only spoken briefly on the phone, paid cash to the broker for this car and now has possession of it, but no title. The police tell me that if I so desire, I can claim the car a stolen and they will arrest this person and hopefully get my car back. My insurance company tells me that they consider the car stolen as well. But they can’t process any claim I might have until the police are involved.

About a month ago, the court appointed attorneys for the broker told us that there was a surety bond in place and that when all the claims were processed we would see some proceeds from the bond. Yesterday I got a registered letter saying that the claims amounted to just over $620,000 and there was a surety bond in place in the amount of $40,000. So my math says I will get about $6.00 for every $1,000 my car was worth. Of course there are likely to be some attorney fees involved so my $30.00 windfall may go down.

Here is my dilemma. The person who bought my car did so in good faith. He paid cash for the vehicle (and, in my opinion, paid a premium price). If I file a claim for this money, I will be forced to call him a thief and send the police or a private towing company to reclaim my car. I would then get the car back to clean up and re-sell and he gets nothing. I haven’t checked to see if there is any tax benefit from me taking this as a loss, but if I do, how do I deal with the title of this car – for which, by the way, I am still paying the insurance on?

Candidly, I won’t miss a meal if I just write this off, but there doesn’t seem to be any roadmap as to how to make this a win-win.

January 7, 2009

Image by gullevek via FlickrThe first thing you should know is that I actually hate the use of the word “ethics”.Over the next few months I plan to write about things that I believe are shaping our industry and influencing the way in which organizations address ethics and compliance. Despite being the CEO of a company called EthicsPoint, the first thing you should know is that I actually hate the use of the word “ethics” when applied to the business world. The problem is that, in its purest form, a person or organization is considered either ethical or unethical based on their actions. But as you and I know, life doesn’t work like that.

Illustrative Case: What to Do About Child Labor?Let me give you an example…Since 2003, I have had the pleasure to work with Paul Melendez at the University of Arizona, where they hold a world-class Ethics Bowl in the fall of each year. More than 20 universities from around the world send teams of two extremely bright and engaged students to share their solution to a “hypothetical” ethical dilemma. Every year that I have judged this event there are always one or two groups of students who take the ethical high-road. One year the case presented involved a company’s foreign country sub-contractor using child labor to harvest the raw materials that supplied 75% of the company’s revenue. Unfortunately, child labor is a common practice in this country and one that is difficult to control. One group of students recommended to immediately stop using the contractor and find another geographic source for the raw material. Their solution was clearly the “ethical bright-line”, but enacting their solution would in all likelihood bankrupt the organization in a matter of weeks.

The Better Way: Finding a Creative Business Solution of High Integrity.Instead of “ethics,” I prefer to use the term “integrity”. In the example above it is easy to see what the righteous solution might be, but we do not live in a perfect world and often are unable to instantly mitigate a terrible situation. In this case the best solution is to invest in education and governance around the supply chain’s labor policies; knowing that while you work to correct the problem your profits will be affected and some child labor will undoubtedly be used. Frankly a business decision of high integrity, like investing to change a paradigm and accepting the fact child labor is still in use, could be considered by an “outsider” to be unethical.

Building a sustainable ethical culture takes time and requires difficult decisions to be made as well as learning from our mistakes.When business leaders are faced with tough decisions that affect people’s livelihood or the sustainability of a business’ franchise the best possible response is often likely to be “baby steps” of high integrity that begin to reshape the values of the organization. Unfortunately, because we live in a two-quarter-at-most-world, a lot of great companies initially find themselves in the penalty box for making these kinds of long-term decisions.

That’s all for now – what are your thoughts? Do you agree that we need to make a distinction between “ethics” and “integrity” or do you feel I’m off base? Should I have judged the example above differently – was the ethical high road the right one to take? Let me know by posting or sending me an email directly.

January 1, 2009

Welcome to my blog. This is my first blog…ever! The purpose of my writing here is to offer some insight into what I believe is driving my business, our industry, and the regulatory environments in which we operate. I begin this dialog with more than 20 years of experience as a CE0, Board member and technology change agent in hopes of starting a passionate dialog about the issues we face. My goal is to generate some creative ideas that support innovation and operational success. I invite you to consider the issues I will present and respond to this blog – I want to hear what you have to say!

Those who know me will say that I always speak my mind and, although this tends to make my legal team a little nervous, I wouldn’t change this quality about myself. Anyway, I generally have an opinion on things - okay, okay, I have a strong opinion on everything! - and I'd like to share it here. However, for this blog to be of value it must be honest and interactive. It must be bold. I assure you I will be honest regardless of how irreverent it may seem, but the interaction depends on you.

For now, I leave you with a thought of what’s to come: my vision for the next couple of years is that supply chain management, from a governance, risk and compliance (GRC) perspective, is one of the most important issues to be addressed. I am hopeful we will talk a great deal about it here and that we can share examples of ways to improve the process.